With Mortgage Rates Down Why Are Home Sales Lagging?

Why are home sales slowing?It’s been nearly a year since the Federal Reserve announced that it would reduce – or taper – its purchases of mortgage-backed securities and other long-term debts from $85 billion a month to something less. Prior to the announcement the marketplace had moved in anticipation of this event, going from the lowest mortgage rates in 65 years.

In 2013 mortgage rates started at 3.41 percent and finished the year at 4.46 percent. That’s not much of a jump in the context of years when rates have been much higher, but it is a huge increase when you’re talking about rates which are less than 3.5 percent.

The Fed & Mortgage Rates

And now a curious thing has begun to happen. Despite all the woes and worrying about slower Fed purchases of long-term securities the fact is that interest rates have steadily receded. Thirty-year fixed-rate financing was priced at 4.12 percent last week according to Freddie Mac, the lowest rate since October 2013.

Given lower interest rates we should be seeing a spark in home sales but to this point that has not been the case. Some have said the disappointing sale results were caused by such factors as a tough winter and a lack of inventory, but we have tough winters every year and if we believe in supply and demand then less inventory should result in higher prices, all things being equal.

Lagging Real Estate Sales

The greater reality is that despite pent-up demand, low-interest rates and rising inventories of available homes existing real estate sales were down 6.8 percent in April compared with a year ago according to the National Association of Realtors.

“Some growth was inevitable after sub-par housing activity in the first quarter, but improved inventory is expanding choices and sales should generally trend upward from this point,” says NAR’s Chief Economist Lawrence Yun.

Talk about putting a positive spin on things. Doesn’t expanding inventory also mean home sales are slowing?

For all the claims of economic improvement the reality is that much antipathy remains in the marketplace, a feeling that the recovery is incomplete and has not included everyone, a good reason in some eyes not to make major real estate commitments. A second point is that the Federal Reserve’s impact on mortgage rates is overblown because after tapering and more tapering rates after the initial rush have simply not risen. Indeed, it’s entirely possible after this week’s jobs report that mortgage rates might actually slink below 4 percent.

Oh well, as former Federal Reserve Chairman Alan Greenspan once explained: “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

Technorati Tags: , , , ,

Posted in: News

Post a Comment